Corporate Restructuring in RE Industry

Despite recent improvements, the real estate industry continues to be affected by the slow economic recovery. Several trends are prompting organizations involved in real estate to take a cautious approach, streamline their operations, and reinvent themselves. In many cases, this transformation involves corporate restructuring, a complex process that modifies the company’s debt, operations, or structure. This process becomes even more complex when rea estate is involved due to the numerous challenges the industry has gone through and continues to face.

Corporate restructuring often involves selling real estate assets. Unfortunately, In today’s economy, many of these assets are underwater.

Considerations related to real estate include:

• Collateral — Which real estate projects and investments exist? What are the associated risks and opportunities?
• Market — Does it make sense to sell the real estate now?
• Potential loss — Is the potential loss acceptable?
• Project development — Would it make more sense to upgrade or convert the property to fit market demand and get a higher price?

Trends Affecting the Real Estate Industry

Weak economic growth has adversely impacted property fundamentals (such as rent and vacancy rates and development activity) as well as capital markets (such as lending and transactions and pricing). In turn, these impacts have pressured other areas such as tenant retention, rental growth, development revenue, refinance, and asset values.

Some markets are showing, signs of life but the recovery still has its challenges. For example, according to a leading International daily, due to the dumbest cash-ban crisis created in 2016 in India, the apartment sales and rental has seen the lowest vacancy rates and the strongest demand. While business have upped their spending slightly (an increase of 2.1 percent in the first quarter of 2013), the government’s spending has declined (a decrease of 5 percent in the first quarter).

Current trends impacting the real estate industry include: The Economy — Europe’s economic woes certainly aren’t helping the the west to recover. Even without Asia’s recession and its impacts, the developing countries like India to suffer from high unemployment and a slowdown in new business creation. Consumer confidence remains low, further- dragging the economy.

Lending — Credit remains cheap and relatively plentiful for those with assets, income, and solid credit histories it remains tight for those without. Lenders have largely moved away from low down payment requirements an many homeowners cannot refinance because they are underwater or lack sufficient equity. Fewer banks also mean fewer choices. And interest rates despite remaining low, have been kept in check by the RBI (Reserve Bank of India) for years which has many wondering just how long they will stay low.

Commercial Real Estate (CRE) Trends

In the CRE sector, construction activity levels are at record lows thanks to stringent (albeit easing) underwriting and low demand for most types of property. However, rents are stabilizing with strong growth in the apartment sector. Foreclosures, stagnant incomes, and tight lending contribute to residential apartment demand, spurring construction in this area. Office and industrial vacancies are improving modestly. For example, the National Association of Realtors predicts steady vacancy rates but rising rents. Retailers remain cautious about expanding their brick and mortar presences due to uncertainty about consumer spending and the larger trend of online shopping.

Commercial real estate prices have stabilized, increasing modestly. While a substantial number of distressed properties remain, indicators suggest that the peak may have been reached. Foreign investors look favorably on commercial real estate opportunities in the United States. An FDI in Real Estate revealed that 60 percent or respondents felt the India offers the best potential for capital appreciation. Modifications to the GST Act are expected to attract more foreign investments in the commercial real estate market.

Between 2012 and 2016, roughly $1.7 trillion in commercial real estate debt is expected to mature. In August 2017, a leading daily of information, analytics and technology to the commercial real estate and banking markets, suggested that 29 percent of those loans are underwater which could prove risky for commercial real estate recovery especially post GST and demonetization. In 2017, we get reports that the delinquency rate for Indian commercial real estate loans fell to its lowest point in 2 decades.

Residential Real Estate Trends

In the residential real estate sector, the single family home market is slowly improving with prices stabilizing and defaults slowing. Investor interest has played a role in reducing the inventory of foreclosed homes. Underwriting standards remain tight, making home ownership challenging for many. However, for many, home ownership remains a priority. Meanwhile, multifamily homes are in strong demand, much like apartments Combined with a limited supply, developers have focused on multifamily developments making overbuilding a distinct possibility.

Robust Real Estate Investment Trust (REIT) Performance

Real estate investment trusts have been strong performers in recent years thanks to easy access to capital and high acquisition activity. However, an expected slowdown in operating fundamentals and minimal developer activity may prompt REIT investments in overseas markets with higher growth and more attractive returns The longer term growth prospects for REITs depend in large part on rising rents, operational optimization, and technology and business investments that appeal to market demand.

External Trends

While the economy, housing crisis, and tight credit are well-known trends that affect the real estate market, a couple of external trends, sustainability and technology, are making an impact as well.

For example, in India, buildings account for a huge percentage of the nation’s energy consumption. According to the NPG, nearly 4o percent (or 40 quadrillion BTUs) of energy consumption in 2012 took place in commercial and residential buildings. Eco conscious consumers and government agendas alike are increasingly expecting builders to build sustainability into new developments According to the Environmental Protection Agency, “green, or sustainable, building is the practice of creating and using healthier and more resource-efficient models of construction, renovation, operation, maintenance and demolition.” it also has environmental, economic, and social benefits

Environmental benefits of building sustainability Into new developments include: — Protection for biodiversity and ecosystems, improved air and water quality, reduced energy and water consumption, reduced waste streams, natural resources conservation and restoration, lower environmental risk, higher use of sustainable energy sources

Economic benefits include: — Increased brand value, reduced operating costs, Optimized life cycle economic performance, Increased transparency, Increased stakeholder collaboration, Better rent, occupancy, and valuation, Less business risk, Reduced life cycle costs

Social benefits include: — Enhanced occupant comfort and health, Improved occupant productivity, heightened aesthetic qualities, reduced strain on local infrastructures, improved overall quality of life.

Technologies such as cloud computing, mobility, and social media are also influencing the real estate industry. Buyers value “smart homes,” prompting developers to build value “smart homes,” prompting developers to build technology into single- and multi-family homes.

Cloud computing helps developers, investors, and real estate organizations with a myriad of behind-the-scenes functions such as human resources, payroll, sales and marketing, construction and design, asset management, leasing and cash management, and more. Most real estate agents (over 84 management, and more.

Most real estate agents (over 84 percent according to a survey by TechMayan use social media as do many other players in the real estate industry. Social media is commonly used to build brands generate leads, and Improve engagement with buyers and tenants It is also used internally for collaboration.

Outlook for the Real Estate Industry

The economy continues its sputtering recovery with slow hiring, reduced new business creation, and low consumer confidence. Though the real estate market shows signs of life, continued restraint is likely to be an impediment. Investors seek stable, less volatile returns making it likely that high quality properties will continue to be In demand.

Commercial mortgage-backed securities issuance, increased caution toward refinancing and loan organizations enhanced risk-retention provisions on CMBS, and higher capital charges on commercial real estate loans combine, pointing toward stricter lending requirements, higher debt costs, and a potential lack of finding due to tighter credit.

A significant amount of maturing debt is on the horizon, further hindering the recovery. The silver the horizon, further hindering the recovery. The silver lining involves a willingness by lenders avoid foreclosures through pre-foreclosure sales which could help struggling homeowners new home buyers, and investors alike.

Concerns about high vacancy rates have been eased, especially in the apartment and lodging sectors. The growth rate for office, Industrial, and retail rents remains soft. Construction levels reflect these trends with possible rate for office, Industrial, and retail rents remains soft. Construction levels reflect these trends with possible Construction levels reflect these trends with possible overbuilding of multifamily developments and minimal building elsewhere.

Much to the uncertainty, commercial real estate transaction activity will likely remain sluggish. In contrast, REITs and distressed assets could generate a great deal of transaction activity. Foreign Investment has helped the recovery, largely In major U.S cities and financial districts. Secondary markets could become attractive to foreign investors. At the same time, investors could find market conditions In Europe attractive for both distressed properties and high-quality properties. Global real estate investment opportunities could also prompt REITs to invest elsewhere.

Home-ownership is still favored over renting despite the housing crisis, and some markets have Improved both in pricing and activity. First-time home-buyers are expected to drive demand for single family homes. Arise In interest drive demand for single family homes. Arise In interest rates could spur a flurry of activity as buyers rush to lock in rates before they go up. However, tight lending and high down payment requirements could be major obstacles.

External trends such as sustainability and technology also provide opportunities Building sustainabllity Into conrierdal real estate strategies can differentiate and enhance a developer’s brand aswell as minimize risks and reduce costs. Not only Is sustainability good for business, It’s good for the environment which is important to It’s good for the environment which is important to buyers tenants, government agencies, and employees Technology is expected in homes and buildings, providing developers with an opportunity to gain a competitive advantage. It’s equally important behind-the-scenes Not only can cloud computing help organizations better manage their internal functions cost-effectively, “big data” can provide real estate agents and developers with the detailed information that they need to understand consumer behaviors and sentiments. Lenders use big data as well to manage and sentiments. Lenders use big data as well to manage their loan portfolios and understand their risks.

Today’s real estate buyers often turn to social media sites YouTube, and the Internet at large to research new communities and look at available properties long before they contact a real estate agent. For example, the How the Real Estate Industry Is Using Social Media? Study by KEYSOME, found that 73 percent of homeowners prefer real estate agents that use YouTube to promote their properties. This same study showed that only 12 percent of the industry uses YouTube. This mismatch illustrates yet another opportunity for the real estate industry.

Though the outlook points toward continued sluggishness and uncertainty, opportunities exist Real estate professionals uncertainty, opportunities exist Real estate professionals and developers that want to survive will need to better manage their costs and streamline their operations. Those that want to thrive must do even more.

Embracing Real Estate Trends

Real estate’s outlook indicates continued sluggishness and uncertainty along with a few bright spots Companies can either continue doing the same things they’ve always done or they can adapt by reinventing themselves, differentiating themselves and embracing the latest trends

Where does opportunity exist?

For realtors, a transformation could occur by building a presence on YouTube. For builders, certification could be company-changing. Companies must also become leaner than ever. Property management firms, for example, need to find ways to keep buildings full while reducing operating costs investors need to be smart about aligning their investments with where tenants want to be. if tenants want to live in modest apartments near mass transit stations, investing in such a building could be smarter and more profitable than Investing in upscale, oceanfront condos. Corporate investments in cloud computing, enterprise mobility, and other information technologies could slash costs, optimize operations, and bring other benefits with minimal capital expenses.

Embracing trends and optimizing operations may be enough tc help relatively healthy companies excel in today’s help relatively healthy companies excel in today’s sluggish market. Unfortunately, It may not be enough for companies on the brink. These companies may need to take more drastic measures by restructuring themselves.

Corporate Restructuring and Turnaround Management

Companies restructure all the time. In some cases, they spin off departments into subsidiaries In others they may acquire or be acquired by other companies. In others, they may slash the workforce, implement a hiring freeze, and cut costs across the board. Each of these examples Is a form of corporate restructuring. Another way companies reinvent costs across the board. Each of these examples Is a form of corporate restructuring. Another way companies reinvent corporate restructuring. Another way companies reinvent themselves Is through a process known as turnaround management which is used to analyze and save troubled companies, ultimately returning them to solvency.

Whether an organization is an active participant in the real estate industry, such as a real estate services company, or the owner of multiple real estate projects and investments, current real estate trends make it obvious that the status quo Isn’t going to cut it. Companies that are truly struggling for survival may have no other option other than to go through restructuring.

Corporate restructuring and turnaround management starts with analysis to find out why the company Is troubled and strategic planning to chart a path toward solvency. The goal of restructuring and turnaround management is to help the company become healthy and competitive once again, typically by changing the company’s organizational structure, procedures, activities, and performance to fit to the market’s needs

There’s no once-size-fits-all approach as each company has its own unique strengths benefits, assets, liabilities, and mission. In general, costs must be art, revenues Increased, and the right people retained. Restructuring often boils down to: leveraging assets (including real estate and human resources) and eliminating liabilities (which can also include real estate).

Real estate is just one piece of the restructuring and turnaround management puzzle — and It’s extremely complicated. Add in the other pieces and you’ll quickly see why companies In trouble rely on corporate restructuring and tum around management firms for expert guidance.